Moving digital cash (forward): The significance of payment schemes

Abstract

This paper explores the potential shift from cash to digital cash in the form of an electronic central bank instrument. The authors argue that without careful strategic choices around how digital cash payment schemes will emerge, the uptake and usage of such instruments is likely to be low — despite their potential to promote greater financial inclusion and innovation. The payment scheme represents those elements beyond just the technology that enables transactions to flow between participants. In developing these schemes, four theoretical options are proposed for central banks to consider, based on two strategic choices. Either central banks take the lead in creating such schemes or leave it to the market to create the schemes. They also need to consider whether to leverage existing schemes or introduce new ones. Based on these two choices, the authors provide four options for central banks: a market-led passive approach; a market-led competitive approach; an authority-led integrative approach; or authority-led developmental approach. The choice of option is dependent on a number of factors, including (1) the policy imperatives behind introducing digital cash, (2) the competencies that exist within the central bank and (3) the existing electronic payments competition landscape.